Question

A vendor (supplier) of Wild Adventure Sports LLC, a company that sells expensive road bikes would be most interested in the company's recent balance sheet information in order to calculate which ratio?

A                        The ratio calculated as the sum of its cash and account receivable balances divided by its current liabilities ( its Quick Ratio).

B	earnings per share

C	Dupont identity

D	Leverage ratio

Answer 1

A vendor is interested in the Liquidity ratio of a company, which is the ability of the business to pay off it's current liabilities as and when it becomes due with it's most liquid assets. This ratio ignores illiquid assets like inventory.

The higher this ratio will be , the more easily the firm will be able to pay off it's vendors, hence they would prefer this company as they will be receiving their payment without any delinquency.

THIS RATIO GVES A REALISTIC VIEW OF THE LIQUID ASSETS HELD BY THE COMPANY.

Liquid assets can be easily sold to pay off the current liabilities.

The correct option is option A.